The Banking Outlook

A Better Use for money:

IT would have been remarkable if the expansion in our home trade during the past four years had not brought about a better enquiry for banking accommodation, and while, as I shall mention later the increase which has taken place in bankers' loans and advances may not have been fully in proportion to the expansion which has taken place in business as a whole, it must have been sufficient during the past two years to exert a moderately faVourable influence upon banking profits.

The half-yearly statements of the leading banks have now been published, showing the position at June 3oth last, and before commenting upon the inwardness of the figures, it may be useful to show how the statement as regard; deposits, loans and investment holdings compares with June 3oth of last year, so far at all events as the Big Six are concerned.

DEposrrs.

June 30th, ' ' 1936. June 30th, 1937.

Barclays .. • • 414,236,680 429,583,855 Martins • • 91,951,096 90,158,135 Lloyds .. • • 395,574,777 413,072,775 Midland .. • • 467,452,184 487,595,481 National Provincial .. 308,223,866 312,492,318 Westminster . • . 356,416,370 364,872,077 £2,033,854,973 £2,097,774,641 AnvAxcEs.

-- '-June 3oth, 1936. June 30th, 1937. - Barclays 175,548,442 198,592,985 Martins 34,798,742 43,416,925 Lloyds .. • • • 155,280,531 164,476,326 Midland .. 191,859,141 214,387,887 National 'ProVincial . - 121,439,650 133,699,727 Westminster 126,511,021 140,057,678 £80,437,527

£894,631,528

INVESTMENTS.

June 3oth, 1936. June 30th, 1937.

Barclays .. 117,058,532 114,739,115 Martins ... 35,723,315 .27,783,575 Lloyds .. 105,009,983 112,701,917 Midland .. 120,990,284 117,998,656 National Provincial 88,107,327 87,512,372 Westminster 106,358,592 112,755,963 £573,248,033 £573,491,593

GROWTH IN DEPOSITS.

Once again there is a substantial increase to note in the total of deposits, the expansion for the twelve months, in the case of the six banks mentioned in the table, being about £64,000,000. There are two things, however, which should be noted with regard to this expansion in deposits. In the first place, the growth is not nearly so pronounced as a twelvemonth ago when, as compared with the position on June 3oth, 1935, the figures for 1936 showed a rise in deposits of nearly L15o,000,000. The second point is that, while the growth in deposits continues, it is now more closely connected with the rise in loans and advances than was the case a few Years ago, when the great, expansion in deposits was almost unaccompanied by any rise in ,the loans, and was more directly connected with expansion of credit, largely as a result of the early operations of the Exchange Equalisation Account. In that respect, therefore, we are returning a little more nearly to normal conditions, though it cannot be too strongly emphasised that they are by no means normal at present. It is also perhaps worth the-fciiton at June 30th last-. were compared .with December 31st of last year, deposits would sho* a slight decrease. Thar, however, is not an unusual_ movement when -the June 30th figures are compared with the end-of-the-year figures.

EXPANSION IN LOANS.

. So far as the past half-year is concerned, undoubtedly good feature is the rise of nearly i9o,000,000 in the loans and advances by the six banking institutions enumerated in the foregoing tables. At the same time, I am inclined to .think it would be unwise to jump to the conclusion that .this rise in banking advances as a whole for the past half-yea; -is to be attributed to trade activity in the heavy industries. -It must not be forgotten that there has been a great deal of -financial as well as commercial activity, and-of the present total of banking advances, something like £4o,000,000 is reprer sented by the credits lent to France, and repayable at the end of this year, while other borrowers have included home corporations, private individuals, stockbrokers and so f-orth.

INDUSTRIAL CHANGES.

Doubtless, there has also been a good increase in advances to the trade in connexion with the carrying of larger stocks but undoubtedly a feature of the present commercial situation in its relation to banking is the change which has taken place in the financial position of the very large industries. As the result of combines and improved organ.- isation, many of these concerns have now very large resources in investment securities, so that, when these are standing, as they have recently been standing, at well over par, the tendency has been, to realise securities to meet any financial needs. indeed no small part of the setback which took place in the British Funds a few weeks ago was believed to be due to sales of this description. The point is, of course, an important one in considering the future profit-earning power of the banks.

A SATISFACTORY HALF-YEAR.

So .far..as the past six months are concerned, however, ;think there is little doubt that, with one important exception perhaps, namely, the decline which may have taken place in Market values of bankers' investments, the period has been a more profitable one for the banks than some of the preceding half-years. Not only has there been a large increase in the more profitable part of bankers' business, namely, loans and advances, but there is good reason to believe that the business has been of a sound character. Less allowance had to be made for bad debts, and it is more likely that there has been a further liquidation of outstanding debts. It must be remembered that, while banking deposits have greatly increased, there has been no rise in rates of interest allowed by bankers on deposits, just as there has been no change now in the Bank Rate for some five years. Bankers are still sorely handicapped in profit-earning power as regards the money employed in bills and in the Money Market, owing to the very low rates prevailing, but the material expansion in loans and advances must somewhat have eased the position.

INVESTMENTS STATIONARY.

Indeed, further evidence of the better use which bankers now have for their deposits is shown in the fact that there is no longer the great expansion in the holding of long-dated investments_ On the contrary, it, be seen from the figures already quoted that, as regards the six banks, there is practically no change on balance in the total of investments when compared with a twelvemonth ago. This, of course, is all to the good, and the recent monthly average.; of the joint stock banks for June last showed a more liquid position as regards the cash in hand than for some time past.

A SOUND POLICY.

The half-yearly statements by the banks are, of course, not accompanied by any details of profits, which are reserved until the end of the year, and while, for the reasons I have mentioned, it seems probable that they have been somewhat larger than for the first half of the preceding year, there has of course been no increase in dividends, and, having regard to the many uncertainties of the outlook, I have little doubt that, should the entire year result in some increase in profits, it will be a case of strengthening reserves. As already indicated, the growth in advances is by no means proportionate either to the growth in deposits or to the expansion of home trade, and, while I am not among those who imagine that the present trade prosperity must. necessarily be followed by a severe reaction, it is nevertheless a fact that some of the forces contributing to present trade activity are of a temporary character. More- over, in view of the very large holdings of Government stocks by the banks, any advantage they might secure from increased demand for loans—possibly even at higher rates of interest than those now obtainable—might be offset by a depre- ciation in gilt-edged securities, should money rates tend in the upward direction. Not only so, but, in common with other industries, working expenses of the banks are constantly increasing, and I think there is a good deal to be said for some of the points made by Mr. Holgate in his article dealing with the question of bankers' charges.

Speaking, however, in the broadest terms, I consider that one of the faVourable points in the outlook lies in the faCt that the many uncertainties and difficulties of the position have long been recognised by the managements of the banks, with the result that the whole policy has been directed towards maintaining the strong position of the balance-sheets rather than increasing the dividends.

ARTHUR W. KIDDY.